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Group 9 - International Business
Apple's Earning Hit by Strong Dollar
Group #9
Key Take Away
A
Foreign exchange market
Exchange rate
Barter
How Functions of Foreign Exchange Market Affected Apple
Currency Conversion:
- If excluded, Apple would have generated $80.8B
- Reported $75.9B, dropping an 8% increase to mere 2%
Apple generates 66% of revenue outside of the United States:
- Insuring against foreign exchange risk is necessary
- Process known as hedging Engaging in insuring against the risk associated with the foreign exchange is known as hedging
Why is the Dollar so Strong?
Currency Strength
- U.S. performed better since the recession of 2008 - 2009.
- Europe and Japan lowered interest rate.
- Adverse developments in developing nations.
Spot Exchange Rates
P
This is the rate at which a foreign exchange dealer converts one currency into another on a particular day.
P
Why does Apple ant to protect the dollar value of its overseas sales?
The reason:
In the first quarter of fiscal year 2019, Apple generated 62 percent of its revenue outside the U.S.
The company posted quarterly (2019) revenue of $84.3 billion.
The impact of Apple under a strong dollar
In 2014, the strong dollar generally results in the company being forced to raise its prices overseas, with the potential result of reducing demand.
In 2015, the strengthening dollar caused Apple to raise prices in its stores ranging from Australia, Canada, New Zealand, France, Denmark, Sweden, Finland and Portugal.
Apple Has
Weak Sales In China
L
-In 2018 Apple had forecasted between $89and $93 billion.
-Due to weak sales in China they made $84 billion.
-This was due to Chinas’ falling economic growth.
Apple’s Preemptive Measures
Hedging Money
Preventive Measures
Crucial Strategy
Development
E
Risk vs. Opportunity
Exchange Rate
The Efficient Market School:
Foward exchange rates as the best possible predictator for future spot rates.
The Inefficient Market School:
Professional exchange rate forecast provides better prediction than foward exchange rates.
Forecasting
Hedge Strategies
to Reduce Foreing Exchange Risk
Foward exchange rates: exchange rate governing future transactions.
Currency Swaps: Simultaneous purchase and sale of given amount of foreing exchange for two different value dates.
Unpredicted Event
Brexit (Summer, 2016)
- The British Pound to fall dramatically against the dollar.
- 20% price hike on some Mac models in the U.K.
- 25% hike in price tiers in its App Store earlier in 2018" (Apple Insider).
References
https://www.kotaksecurities.com/resources/images/why-fundamental-analysis-is-important/img3.jpg
https://www.google.com/amp/s/appleinsider.com/articles/18/01/31/weak-us-dollar-will-supercharge-apples-already-hot-overseas-revenues/amp/